FORM 10-QSB
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Quarterly Report Under Section 13 or 15(d)
Of the Securities Exchange Act of 1934
For Quarter Ended September 30, 1997
Commission File Number 33-16531-D
INTERNATIONAL AUTOMATED SYSTEMS, INC.
(Exact name of registrant as specified in its charter)
UTAH 87-0447580
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
512 South 860 East
American Fork, Utah 84003
(Address of principal executive offices)
Registrant's telephone number
including area code (801)763-9965
Not Applicable Former Address, if changed
since last report
Indicate by check mark whether the registrant (1) has
filed all reports required to be filed by Section 13
or 15(d) of the Securities Exchange Act of 1934 during
the proceeding 12 months (or such shorter period that
the registrant was required to file such reports) and
(2) has been subject to such filing requirements for
the past 90 days. Yes x No
As of November 10, 1997, Registrant had 15,255,361
shares of common stock, no par value per share, issued
and outstanding after deducting shares held in the
corporate treasury.
PART I
ITEM I - FINANCIAL STATEMENTS
The condensed financial statements included
herein have been prepared by International Automated
Systems, Inc. (the "Company"), without audit, pursuant
to the rules and regulations of the Securities and
Exchange Commission. Certain information and footnote
disclosures normally included in financial statements
prepared in accordance with generally accepted
accounting principles have been condensed or omitted
pursuant to such rules and regulations, although the
Company believes that the disclosures are adequate to
make the information presented not misleading.
In the opinion of the Company, all adjustments,
consisting of only normal recurring adjustments,
necessary to present fairly the financial position of
the Company, the results of its operations and cash
flows have been made. The results of its operations
for such interim period is not necessarily indicative
of the results to be expected for the entire year.
The Company is a development stage company.
Historically its primary activities have been research
and development of high technology which can be
applied to develop commercial products. Such
development has significant risks.
INTERNATIONAL AUTOMATED SYSTEMS, INC.
(A Development Stage Company)
CONDENSED BALANCE SHEETS
(Unaudited)
September 30, June 30,
1997 1997
----------- -----------
ASSETS
Current Assets
Cash and cash equivalents $ 5,507 $ 7,758
Receivable from sales
representatives, net of
allowance for doubtful
accounts of $40,783 - -
Related party receivable 1,304 11,073
Prepaid expenses 9,740 14,813
Inventory 108,092 108,092
----------- -----------
Total Current Assets 124,643 141,736
----------- -----------
Property and Equipment
Computer and electronic equipment 137,973 137,162
Furniture and fixtures 20,982 20,982
Automobiles 21,657 21,657
Leasehold improvements 18,238 18,238
----------- -----------
Total Property and Equipment 198,850 198,039
Accumulated depreciation (82,906) (74,288)
----------- -----------
Net Property and Equipment 115,944 123,751
----------- -----------
Other Assets
Patents, net of accumulated
amortization of $27,460 and
$24,867, respectfully 212,762 211,500
Franchises 10,000 10,000
----------- -----------
Total Other Assets 222,762 221,500
----------- -----------
Total Assets $ 463,349 $ 486,987
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable $ 24,179 $ 30,426
Current portion of long-term
notes payable 4,045 4,045
Accrued liabilities 5,662 6,541
Advance from majority
shareholder 8,000 -
----------- ----------
Total Current Liabilities 41,886 41,012
Notes Payable 5,238 6,221
----------- -----------
Total Liabilities 47,124 47,233
----------- -----------
Stockholders' Equity
Preferred stock, Class A,
no par value, 5,000,000
shares authorized, 1,000,000
shares issued and outstanding 292,786 292,786
Common stock, no par value,
45,000,000 shares authorized,
15,255,361 shares issued and
outstanding 3,072,412 2,839,727
Deficit accumulated during the
development stage (2,948,973) (2,692,759)
----------- -----------
Total Stockholders' Equity 416,225 439,754
----------- -----------
Total Liabilities and
Stockholders' Equity $ 463,349 $ 486,987
=========== ===========
The accompanying notes are an integral part of these financial statements.
INTERNATIONAL AUTOMATED SYSTEMS, INC.
(A Development Stage Company)
CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)
Cumulative
For the Period
From Inception
(September 26, 1986)
For the Three Months Through
Ended September 30, September 30,
1997 1996 1997
---------- ---------- -----------
Revenue
Sales $ 400 $ 9,885 $ 108,365
Equipment lease income
from related party - - 20,000
---------- ---------- -----------
Total Revenue 400 9,885 128,365
Cost of Sales 350 5,683 175,465
---------- ---------- -----------
Gross Profit (Loss) 50 4,202 (47,100)
---------- ---------- -----------
Operating Expenses
General and administrative
expense 135,477 114,542 1,418,118
Research and development
expense 118,106 205,408 1,454,107
Amortization expense 2,593 462 29,340
---------- ---------- -----------
Total Operating Expenses 256,176 320,412 2,901,565
---------- ---------- -----------
Loss From Operations (256,126) (316,210) (2,948,665)
Other Income and (Expense)
Interest income 180 5,492 18,526
Interest expense (268) (274) (18,834)
---------- ---------- -----------
Net Other Income (Expense) (88) 5,218 (308)
---------- ---------- -----------
Net Loss $ (256,214) $ (310,992) $(2,948,973)
========== ========== ===========
Net Loss Per Share $ (0.02) $ (0.02) $ (0.18)
========== ========== ===========
Common and Common
Equivalent Shares Used
in Per Share Calculation 16,255,361 16,186,100 16,186,100
========== ========== ===========
The accompanying notes are an integral part of these financial statements.
INTERNATIONAL AUTOMATED SYSTEMS, INC.
(A Development Stage Company)
CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
Cumulative
For the Period
From Inception
(September 26,1986)
For the Three Month Through
Ended September 30, September 30,
1997 1996 1997
---------- ---------- -----------
Cash Flows From Operating
Activities
Net loss $ (256,214) $ (310,992) $(2,948,973)
Adjustments to reconcile net
income to net cash provided by
operating activities:
Allowance for doubtful accounts - - 40,783
Amortization 2,593 462 29,340
Depreciation 8,618 7,797 82,906
Stock based compensation - - 331,747
Change in assets and liabilities:
Inventory - (4,430) (108,092)
Sales representatives receivable - (3,501) (40,783)
Prepaid expenses 5,073 (5,618) (9,740)
Accounts payable (6,247) (7,527) 24,179
Accrued liabilities (879) (274) 5,662
---------- ---------- -----------
Net Cash Used By Operating
Activities (247,056) (324,083) (2,592,971)
---------- ---------- -----------
Cash Flows From Investing Activities
Purchase of property and equipment (811) (15,316) (179,493)
Purchase of rights to technology (3,855) (18,940) (240,222)
Organization costs - - (1,880)
Purchase of franchise rights - - (10,000)
Proceeds to (payments from)
related party 9,769 - (1,304)
---------- ---------- -----------
Net Cash Provided By (Used By)
Investing Activities 5,103 (34,256) (432,899)
---------- ---------- -----------
Cash Flows From Financing Activities
Proceeds from issuance of
common stock - - 912,346
Proceeds from advance from
controlling shareholder 232,685 - 2,102,838
Payments for treasury stock - - (3,325)
Payments for stock offering costs - - (56,509)
Proceeds from net borrowings
from related party 8,000 - 86,101
Payments on note payable (983) (906) (10,074)
---------- ---------- -----------
Net Cash Provided By (Used By)
Financing Activities 239,702 (906) 3,031,377
---------- ---------- -----------
Net Increase (Decrease) In Cash
and Cash Equivalents (2,251) (359,245) 5,507
Cash and Cash Equivalents at
Beginning of Period 7,758 545,847 -
---------- ---------- -----------
Cash and Cash Equivalents
at End of Period $ 5,507 $ 186,602 $ 5,507
========== ========== ===========
The accompanying notes are an integral part of these financial statements.
INTERNATIONAL AUTOMATED SYSTEMS, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
NOTE 1--INTERIM FINANCIAL STATEMENTS
The accompanying financial statements have been prepared by
the Company, and are unaudited. In the opinion of management,
the accompanying unaudited financial statements contain all
necessary adjustments for fair presentation, consisting of
normal recurring adjustments except as disclosed herein. The
results of operations of the interim periods presented are not
necessarily indicative of the results to be expected for the
entire year.
The accompanying unaudited interim financial statements have
been condensed pursuant to the rules and regulations of the
Securities and Exchange Commission; therefore, certain
information and disclosures generally included in financial
statements have been condensed or omitted. These financial
statements should be read in connection with the Company's
annual financial statements included in the Company's annual
report on Form 10-KSB as of June 30, 1997.
NOTE 2--LOSS PER SHARE
The Company has computed loss per share based on the number of
common and preferred shares outstanding as of September 30,
1997 and 1996 under the treasury stock method.
NOTE 3--RELATED PARTY TRANSACTIONS
During the year ended June 30, 1997, the company advanced a
corporation controlled by the Company's majority shareholder
$11,073; this advance was paid off in August 1997.
Subsequently, the Company has advanced this same corporation
an additional $1,304, no terms for repayment have been
established.
For quarter ending September 30, 1997 $232,684 was advanced
by Neldon Johnson for research as additional paid-in-capital.
In addition to these advances from Mr. Johnson, he has also
loaned the Company $8,000, no terms for repayment have been
established.
NOTE 4--CONTINGENCIES
On July 2, 1996, the Company had a class action law suit filed
against it by shareholders for securities violations. The
class action has been brought on behalf of all persons and
entities who purchased shares of common stock from May 13,
1996 to June 27, 1996. The suit is seeking damages incurred
based on the decrease in the Company's stock price because of
alleged material misrepresentations by the Company regarding
new technology developed by the Company. The ultimate outcome
of the litigation cannot presently be determined. Accordingly,
no provision for any liability that may result upon
adjudication has been made in the accompanying financial
statements and the possible effect it will have on future
financial statements is unknown.
On August 13, 1996 the Company was served a formal order of
private investigation by the U.S. Securities and Exchange
Commission (SEC). To date, the SEC has issued a subpoena
requiring the production of certain documents. The SEC staff
has advised that its inquiry should not be construed as an
indication by the SEC or its staff that any violations of law
have occurred.
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Liquidity and Capital Resources. As of September 30, 1997,
Registrant had cash of $5,507 compared to cash of $7,758 as of June
30, 1997. Cash decreased because of the continuing losses from
research and development and other activities. Inventory did not
change from June 30, 1997. As of September 30, 1997, total current
assets were $124,643 and total assets were $463,349 compared to
total current assets $141,736 and total assets $486,987 as of June
30, 1997.
As of September 30, 1997, Registrant had total liabilities of
$47,124 and shareholders' equity of $416,225 compared to total
current liabilities of $47,233 and shareholders' equity of
$439,754. The deficit accumulated during the development stage was
$2,948,973 as of September 30, 1997, compared to $2,692,759 as of
June 30, 1997. For the near term the Company's ability to continue
it operations and activities is dependent upon the Company's major
shareholder providing funds to the Company. At this time the
Company is not generating sufficient funds to sustain its
operations. The decrease in shareholders' equity is attributable
primarily to the continued research and development activities.
These activities have significant risks involving the development
of technology and the development of products that may be
commercially acceptable and profitable. As of September 30, 1997,
the ratio of current assets to current liabilities was
approximately 2.98 to one.
Results of Operation. For the quarter ended September 30,
1997, Registrant had total revenues of $400 compared to total
revenues of $9,885 for the same period a year earlier. For the
quarter ended September 30, 1997, Registrant had total operating
expenses of $256,176 compared to expenses of $320,412 during the
same quarter a year earlier. The decrease in income reflects a lack
of sales and increased operating expenses. As of September 30,
1997, cost of sales was $350 compared to $5,683 a year earlier and
gross profit was $50 compared to $4,202 a year earlier. For the
current quarter Registrant had a net loss of $256,214 compared to
a net loss of $310,992 for the same quarter a year earlier. The
decrease in net loss is attributable to the decrease in research
and development expenses due to downsizing to meet the Company's
current financial position. For the current quarter the net loss
per share was $(0.02) compared to $(0.02) for the same quarter a
year earlier. For the quarter ended September 30, 1997, general
and administrative expenses were $135,477 compared to $114,542
and research and development expenses were $118,106 compared to
$205,408 a year earlier. The Company has only minimal revenues,
but its level of operations requires additional funds.
The Company's ability to continue its activities is dependent
on it receiving funds either as loans, advances or sales of equity.
Previously the major shareholder has provided funds, but there is
no formal agreement between the Company and the majority
shareholder to continue providing funds in the future. If the
Company had to seek funds from another source there is no assurance
that funds would be available at all or on terms acceptable to the
Company.
Part II.
Item 1. Legal Proceedings.
On July 2, 1996, the Company and its president were named as
defendants in a proposed class action lawsuit filed on behalf of
certain shareholders seeking damages for violations of the federal
securities laws. The Complaint was claims to be brought on behalf
of all persons and entities who purchased shares of common stock of
the Company during the period of May 13, 1996, to June 27, 1996.
The suit seeks damages based on the decrease in the Company's stock
price in the trading market because the Company made allegedly
material misrepresentations concerning new technology being
developed. On August 8, 1996, an amended complaint was filed which
increased the number of plaintiffs, added and modified certain
allegations, and changed the proposed period from April 3, 1996, to
June 27, 1996. At this time the final outcome of the litigation
cannot be determined. The Company intends to defend vigorously the
litigation. No provision for any liability that may result from any
adverse adjudication has been made in the accompanying financial
statements and any effect on future financial statements is
unknown. The lawsuit is captioned Edouard Serfaty, David D. Baker,
Michael Berry, Margaret Moskes, Craig Swapp, Linda M. Baker, Robert
H. Baker, Kourosh Khalili and Ariel Tzadik, v. International
Automated Systems, Inc., and Neldon P. Johnson, Civil No. 2:96 CV
0583 C, filed in the United States District Court for the District
of Utah, Central Division.
In August 1996, the Company learned that the U.S. Securities
and Exchange Commission issued a formal order of private
investigation on or about August 13, 1996, to investigate whether
violations of the federal securities laws have occurred. The SEC
staff subpoenaed documents from entities and individuals including
the Company. Also, the Company is aware that the SEC issued
subpoenas to take the testimony under oath and on the records of
individuals including persons associated with the Company.
Routinely the Staff advised that its inquiry should not be
construed as any indication that any violations of law have
occurred.
In April 1997 a complaint was filed against the Company for
breach of contract seeking damages of $60,000 plus interest and
attorney's fees. The litigation was filed in the state court in
Utah and is captioned Alarm Control Company v. International
Automated Systems, Incorporated. The Company believes the suit
lacks merit and intends to defend it vigorously.
Item 2. Changes in Securities.
None.
Item 3. Defaults upon Senior Securities.
None.
Item 4. Matters Submitted to a Vote of the Company's Shareholders.
None.
Item 5. Other Information.
None.
Item 6. Exhibits, Financial Statements, Schedules and Reports on
Form 8-K.
A. Exhibits.
Ex.27 Financial Data Summary.
B. Reports on Form 8-K.
None.
Signatures
Pursuant to the requirements of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
Date 11-14-97
International Automated Systems, Inc.
By /S/ Neldon Johnson
President and Chief Executive Officer
By /S/ Neldon Johnson
Chief Financial Officer
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